The North American Free Trade Agreement (NAFTA) has spurred economic development in Mexico, but is not enough to achieve economic convergence with Canada and the United States even in the long run without investment in innovation, infrastructure and adequate institutions, a new World Bank study says.

                Lessons from NAFTA for Latin America and the Caribbean Countries: A Summary of Research Findings, co-authored by World Bank economists Daniel Lederman, William F. Maloney and Luis Servén, was released in December in advance of the 10 year anniversary of the implementation of the agreement on Jan. 1, 2004 . It was prepared to help acquaint countries of the region with possible effects of the Free Trade Area of the Americas (FTAA), which is being negotiated by Western Hemisphere nations.

                “NAFTA has had positive effects in Mexico but they could have been better,” said David de Ferranti, World Bank vice president for Latin America and the Caribbean . “Free trade definitely brings new economic opportunities, but the lessons from NAFTA for other countries negotiating with the U.S. are that free trade alone is not enough without significant policy and institutional reforms.”

                In preparing the report, the authors acknowledged the difficulty of separating the impact of NAFTA from the peso crisis experienced by Mexico in 1994-95 —also known as the Tequila crisis— and from the dramatic liberalizations of trade barriers that began in the 1980s. Through the use of various statistical methods they were able to identify successfully...

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